Geneva Show Inspires Rush To Raise Sales Estimates For 2016.
But Some Caution That Global Economic Conditions Are Brittle.
“It’s all very fragile and it won’t take much for the whole thing to collapse a little. Any recovery in Europe is still predicated on these conditions”
The Geneva Car Show’s display of new SUVs, hot supercars and mainstream new models has reinvigorated market watchers, and many have been frantically raising their sales expectations for Europe.
Last year car sales in Western Europe leapt nine per cent to 13.2 million, but industry leaders were quick to play down prospects for 2016, with consensus forecasts centring at around three per cent.
In January, Daimler CEO Dieter Zetsche warned that European Union car sales will barely improve in 2016, and predicted an even slower two per cent growth. Investment bank Morgan Stanley was in the mainstream expecting sales growth of around three per cent.
But Barclays Equity Research has thrown caution to the winds after being intoxicated by Geneva.
“Given the optimism on display from the companies present at our Autos conference in Geneva, as well as the strength of recent sales date, we took the opportunity to upgrade our European demand forecasts for 2016 to 5.2 per cent from 3.7 per cent,” said Barclays analyst Alexis Albert.
LMC Automotive was on the high side of the consensus in January, forecasting 4.7 per cent growth, but increased it again a month later to 5.3 per cent for the year. LMC did point out some worrying portents, before raising its forecast.
“Downside risks are notable, externally, with slowing global economic growth, and within the region, not least through potential BREXIT (British exit from the E.U.) in June. Nonetheless, a solid year of growth remains in prospect for the region’s car market,” said LMC Automotive analyst Jonathon Poskitt.
Underestimate
HSBC Global Research admitted that it might have underestimated its forecast for the year and talked about an upside risk in Europe as consumers benefit from low fuel prices and low finance rates. Evercore ISI said the strong start to the year – Western Europe sales rose 6.0 per cent in January and were apparently strong again in February – has already undermined its 3.0 per cent forecast for the year as being too low.
But IHS Automotive analyst Tim Urquhart wouldn’t be budged from his low forecast of a 1.5 per cent increase to 13.4 million.
“There are big concerns in the global economy, according to our macro report. There are housing bubbles, China, tough circumstances. It’s all very fragile and it won’t take much for the whole thing to collapse a little. Any recovery in Europe is still predicated on these conditions,” Urquhart said.
“Not only that, it’s hard for manufacturers to make money. They are having to give huge discounts, there’s pre-registration, it’s all based on unsound foundations. It’s all very well shifting cars, but there’s no point if you’re making no money on what you’re selling” he said.
Nevertheless in the past few weeks, stock markets have recovered a bit as commodity prices rebounded and the European Central Bank extended quantitative easing. Morgan Stanley’s global research team said even though it doesn’t expect a global recession this year, it worries about the impact of lower oil prices and easier monetary policy on growth.
Couple of caveats
Barclays’ Albert’s glass is half full though, with a couple of caveats.
“We think European volumes will remain on a much more similar trend to last year than many market participants currently assume,” Albert said.
“Clearly volume growth isn’t enough if the pricing uplift doesn’t follow through to lift margins and the German press – (Der Spiegel) has been speculating regarding the quality of the recent auto sales strength, but given the bullish tone of companies in Geneva, we believe the current volume figures are robust. But companies were a little reticent regarding incentive levels, and it remains to be seen whether pricing aggression as a result of the diesel issue is now set to abate,” Albert said.
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